The European Central Bank threw Portugal a temporary lifeline yesterday (10 January) by buying up its bonds, as market and peer pressure mounted on Lisbon to seek an international bailout soon. But analysts said that in the euro zone’s simmering debt crisis, the Battle of Spain would likely prove decisive in 2011.A senior eurozone source said on Sunday that Germany, France and other eurozone countries were pushing Portugal to seek an EU-IMF assistance programme, following Greece and Ireland, to prevent contagion spreading to much larger Spain, the fourth biggest economy in the euro area.

The eurozone source said Lisbon would need between 50 billion and 100 billion euros in loans, similar to Ireland, which accepted an 80 billion euro EU-IMF rescue in December after a banking crisis caused by a burst real-estate bubble lumbered the state with huge liabilities.

Portuguese Prime Minister José Sócrates said last Friday his country had no need of outside assistance because it was ahead of schedule in reducing its budget deficit.

Socrates, who heads a minority socialist government, is stubbornly avoiding a bailout, mindful of the traumatic history of Portugal’s two International Monetary Fund rescues since its return to democracy in 1974.

The memory of the IMF’s involvement, in 1977 and in 1983, is so etched on the Portuguese psyche that the country’s media is not even mentioning that it would primarily be the European Union that would finance any bailout this time.

To read this article in full, please click here. If you would like to leave a comment, please use the box below.